Taxing times for small, medium-sized firms
A vast number of companies are retrenching staff, with possible exiting from contracts such as leases and other onerous obligations to keep themselves afloat. One of a company’s largest creditors is the SA Revenue Service (Sars).
There is value added tax, Pay As You Earn, the Skills Development Levy, Unemployment Insurance Fund contributions, income tax and dividend tax to be paid.
If you cannot afford to pay your employees, how will you meet these statutory obligations?
What is clear is that we are in the midst of a human disaster, and whether the powers that be acknowledge this or not, we are in exceptional times. This will have to be taken into account in any discussions with creditors and with Sars as far as debt compromises are concerned. In these circumstances, a taxpayer may be looking at the write-off and or extended payment terms, or new payment arrangements, and commercial rationale has to be foremost in their minds.
The Tax Administration Act (TAA) allows for mechanisms that can result in the following:
* Tax debt compromises in terms of section 200 of the TAA.
* An instalment payment arrangement in terms of section 167 of the act.
* A temporary write-off of tax debts in terms of section 195.
* A permanent write-off of tax debts in terms of section 197 of the TAA.
Did an exceptional circumstance result in your liquidity problems? When companies find themselves in this position, how do they engage with Sars?
How do you start to enter into any form of payment arrangement as envisaged in terms of section 167 and 168 of the TAA? As the saying goes, fools rush in where angels fear to tread. Now angels don’t pay tax, so they don’t fear Sars, but you get my point? Do you pick a fight with an institution with unlimited resources and draconian power? The simple answer is you don’t. You have to engage, and you have to do it in the right way, on the right terms, and in the prescribed manner. Don’t fight, ask.
Payment arrangements can be considered by senior Sars officials if they are satisfied that the criteria or risks have been duly taken into consideration, and the agreement will facilitate the collection of the tax debt. So what does that mean in layman’s terms? The tax payment arrangement has to be affordable, and the instalments have to be able to be met, and it has to be acceptable to Sars. You will have to ensure that your request is properly motivated.
What is appropriately motivated? That cannot be determined if your financial house is not in order. You have to do your financial planning correctly.
We are of the view - and we may be criticised for it - that the current blanket three-month postponement or deferral period will not be sufficient to provide the required relief in the present circumstances in the majority of cases. Sars and the powers that be will have to extend the period to ensure that the tax debts that are due are collected and that there is no real loss to the fiscus. Would you rather levy interest and extend a period with adequate security or pursue a standard three-month payment plan or run the risk of not recovering anything?
As part of your financial planning as a business owner, you have to seek guidance with regard to sections 200 and 167 of the TAA.
Engage with Sars, sooner rather than later to limit the impact of these exceptional circumstances on the ability of your business to meet its cash-flow requirements and obligations to pay tax.
Dr Gerhard Nienaber CA (SA) and Willem Oberholzer CA (SA) are tax directors at Probity Advisory.